Southwest Airlines Makes Its Case for More Gates in Dallas

The fight for gate space at Love Field, Dallas' secondary airport, has really heated up in the last week. American Airlines (NASDAQ: AAL) is being forced to divest two gates it controls there as a condition of its merger with US Airways. Three airlines have been competing for the right to take over those gates and increase service to Love Field.

Delta Air Lines (NYSE: DAL) made its interest known last November and has begun selling tickets for new flights to Atlanta, Detroit, Los Angeles, Minneapolis-St. Paul, and New York's LaGuardia Airport. However, on Monday, its ambitions were finally quashed by the Department of Justice.

It looks like Delta's plan to expand at Dallas Love Field is dead.

Last week, Virgin America threw its hat in the ring, announcing plans to fly to Los Angeles, San Francisco, LaGuardia, Chicago O'Hare International Airport, and Washington's Reagan National Airport. On Monday, Southwest Airlines (NYSE: LUV) made its own case to expand at Love Field. While Southwest already controls 16 of the airport's 20 gates, it has promised to add service from Love Field to 12 new cities if it can get the two gates up for grabs.

New competition arrivesWhile the competition for gate space at Love Field was a two-way race between Southwest and Delta, each carrier seemed to have a reasonable chance of getting American's gates.

On the one hand, Delta argued that Southwest already has 16 gates at Love Field and carries more domestic passengers than any other airline. Delta therefore objected to the DOJ's reluctance to let legacy carriers acquire any of the gates and slots American is divesting.

On the other hand, Southwest could rest easy knowing that it had the upper hand as a "low-cost carrier." Its confidence was supported by the DOJ's ultimate decision that awarding Love Field gates to Delta would not improve competition.

However, Virgin America is less than a tenth of Southwest's size, making it a real underdog -- and therefore more likely to win favor with the DOJ. Virgin America's plans would add new low-cost carrier competition from Dallas to three of the top seven U.S. metro areas: New York, Chicago, and Washington, D.C. Virgin America's proposal thus called for a response from Southwest.

Striking backSouthwest struck back this week by significantly expanding its ambitions for Love Field. As recently as last October, Southwest Airlines CEO Gary Kelly told analysts that 16 gates at Love Field was "plenty." Now, Southwest claims that "demand for Southwest nonstop service from the airport far exceeds the Company's current gate capacity."

To recap, last month, Southwest announced plans to add new nonstop service from Love Field to 15 cities this fall. (For comparison purposes, it currently serves 18 cities nonstop from Love Field, two of which it is dropping this summer.)

Southwest is promising to add nonstop service to 12 more cities if it gets American's gates.

On Monday, Southwest announced that it plans to add five more destinations from Love Field next year: Boston, Oakland, Panama City Beach, Fla., Portland, Ore., and San Jose, Calif. Moreover, it is dangling the promise of 20 additional flights to 12 cities if it gets American's two gates. That would bring it up to 48 destinations served nonstop from Dallas.

Weighing the optionsWith its new plans in hand, Southwest can make a much more compelling case for winning the two gates over Virgin America. Of the 12 new destinations Southwest is proposing to serve, five are currently American Airlines monopoly markets at Dallas-Fort Worth International Airport: Charlotte, Charleston, S.C., Indianapolis, Raleigh-Durham, and Sacramento.

By contrast, Virgin America's proposal would increase competition on a smaller number of routes, albeit very important ones. However, American faces other competition in all of those markets. As a result, Southwest's new proposal seems to be more pro-competitive on balance.

No matter which carrier gets the chance to expand at Love Field, one thing is certain: American Airlines will face a much more competitive environment in the Dallas area by this time next year.

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